Issues
In this issue I identify a fast-growing biopharmaceutical company that will benefit as the changing population demands better healthcare than ever before. It is well established with a high dividend yield and poised in front of the wave at the cutting edge of medical innovation.
Market trends remain quite positive, and I continue to recommend that you work to get more invested. Months from now, the market will be higher.
As for today’s recommendation, it’s a dirt-cheap dividend-payer in the energy industry that may not get going right away, but downside risk looks minimal and all the fundamentals argue that it will eventually be higher.
As for today’s recommendation, it’s a dirt-cheap dividend-payer in the energy industry that may not get going right away, but downside risk looks minimal and all the fundamentals argue that it will eventually be higher.
Current Market OutlookToday’s news centered around earnings duds from a couple of big names (Caterpillar and Nvidia), causing the major indexes to take some hits. But stepping back a bit, we’re not seeing anything abnormal—since the start of last week, the major indexes have slipped 1.5% (ballpark) and most leading stocks are acting just fine. Of course, further dips in the short-term are certainly possible given that the Nasdaq ran 1,000 points from its Christmas Eve low, earnings season is revving up and most stocks have plenty of overhead to battle. Even so, the intermediate-term trend remains pointed up and, in general, the market and leading stocks continue to act how they “should” if the sellers have run out of ammo. We remain optimistic, and think many names will be good buys if we do see some more retrenchment.
Tonight’s list has a great batch of mostly growth stocks, albeit from a variety of industries. Our Top Pick is Lululemon (LULU), which, after a great six-month run and fourth-quarter correction, is showing terrific strength. Try to buy on dips.
| Stock Name | Price | ||
|---|---|---|---|
| Ciena (CIEN) | 44.25 | ||
| EPAM Systems (EPAM) | 188.24 | ||
| Exact Sciences (EXAS) | 116.91 | ||
| Lululemon Athletica (LULU) | 304.69 | ||
| Mirati Therapeutics (MRTX) | 104.98 | ||
| ServiceNow (NOW) | 341.86 | ||
| Shopify (SHOP) | 585.00 | ||
| Splunk (SPLK) | 207.67 | ||
| Tencent Music Entertainment (TME) | 18.41 | ||
| Xilinx (XLNX) | 134.50 |
The Emerging Markets Timer held and slightly improved its position and is sitting right at its 50-day moving average, which is both constructive and bullish.
We would like to see a stronger uptrend before moving ahead to put much more cash to work but we do have a new recommendation from Brazil—a market that has moved up 20% in the last month.
We would like to see a stronger uptrend before moving ahead to put much more cash to work but we do have a new recommendation from Brazil—a market that has moved up 20% in the last month.
Last week I mentioned that two of our trend-following indicators had turned positive (the Cabot Emerging Markets Timer and the Cabot Tides), and now we can add one more indicator, the Blastoff Signal—a rare but powerful signal that occurs when the NYSE daily advance-decline line averages twice as many advancers as decliners over a 10-day span. As a result, I continue to advise you to get more heavily and aggressively invested. Months from now, the market will be higher.
Current Market OutlookWe’ve now seen four constructive weeks in a row for the overall market, not just because the major indexes are rallying, but also due to the amazing breadth during the advance (a good longer-term sign and indicative of a vacuum of selling pressure) and the action of individual stocks, a ton of which are setting up good-looking launching pads. That said, it’s not all peaches and cream—the intermediate-term trend is still on the fence (could turn up this week, but hasn’t quite yet), most indexes and stocks are below longer-term moving averages and, after four good weeks, some shakeouts and potholes (possibly on earnings) could emerge. Overall, we’re optimistic and are bumping up our Market Monitor to a level 6, but it’s best to step (not plunge) into stocks and keep looking for lower-risk entry points.
This week’s list contains another batch of great stories, with a variety of strong charts (some coming off lows, others at new highs, others setting up). Our Top Pick is Coupa Software (COUP), which is in a strong group and has seen superb buying volume in recent days.
| Stock Name | Price | ||
|---|---|---|---|
| Alarm.com (ALRM) | 71.33 | ||
| Bilibili (BILI) | 28.71 | ||
| Coupa Software (COUP) | 262.20 | ||
| Cronos Group (CRON) | 17.62 | ||
| HubSpot (HUBS) | 582.89 | ||
| Lending Tree (TREE) | 411.51 | ||
| LPL Financial Holdings (LPLA) | 85.22 | ||
| Novocure (NVCR) | 0.00 | ||
| Pinduoduo (PDD) | 87.53 | ||
| Veeva Systems (VEEV) | 180.23 |
The rally off the climactic Christmas Eve low has been very impressive, triggering our 2-to-1 Blastoff Indicator that prompted us to put some money back to work last week. Since then, the action has been encouraging, and our Cabot Tides are close to a new Buy signal. If it comes, we’ll put more of our cash into potential leading names.
Change in weather and change in markets seem to be the norm today. We certainly had an extreme case of market volatility last year, with the Dow Jones Industrial Average ending up with a loss of 7.36%, the S&P 500 declined by 7.6% and the Nasdaq dropped by 5.57%.
Updates
With war being one of the most dominant themes of the last four years, it stands to reason that investors should position their portfolios to account for this conspicuous (and unwelcome) trend.
And lest one be tempted to think that the warfare theme will diminish anytime soon, last week’s article by NPR deflates that illusion: It revealed that global military conflicts are at their highest level since WWII.
And lest one be tempted to think that the warfare theme will diminish anytime soon, last week’s article by NPR deflates that illusion: It revealed that global military conflicts are at their highest level since WWII.
Price targets are standard practice on Wall Street. But sometimes, they can act as an artificial ceiling.
For example, say Truist sets a price target on an up-and-coming growth stock that’s 25% higher than its current share price. For a growth stock, a 25% return isn’t much. But then again, the stock could be a total flop, which is the natural boom-or-bust tradeoff growth investors must endure in trading off increased risk for massive upside. So, a price target on a growth stock seems almost like an unnecessary cap on a stock that has the potential to go through the roof.
For example, say Truist sets a price target on an up-and-coming growth stock that’s 25% higher than its current share price. For a growth stock, a 25% return isn’t much. But then again, the stock could be a total flop, which is the natural boom-or-bust tradeoff growth investors must endure in trading off increased risk for massive upside. So, a price target on a growth stock seems almost like an unnecessary cap on a stock that has the potential to go through the roof.
WHAT TO DO NOW: Continue to trim your sails. In the Model Portfolio, we’ve been getting closer and closer to shore as growth funds and indexes are under pressure and AI stocks cascade lower. Tonight we’re going to further trim Marvell (MRVL) given its ugly action, selling a third of what we have left. That will leave the portfolio with a big 58% cash position. We could put some of that to work if growth names find support, but we want to see key growth measures firm up before buying.
After a brief pause last week, small caps are once again leading the pack.
Through Wednesday’s close, the S&P 600 Small Cap Index is up roughly 21% year to date, compared to gains of about 15% for the S&P 400 MidCap Index, 17% for the Nasdaq and 11% for the S&P 500.
Through Wednesday’s close, the S&P 600 Small Cap Index is up roughly 21% year to date, compared to gains of about 15% for the S&P 400 MidCap Index, 17% for the Nasdaq and 11% for the S&P 500.
Its earnings season again! That’s a good thing. Earnings just might save the day in an otherwise confusing and uncertain market.
The market is causing whiplash. The Iran peace deal changed things. Stocks held back by high oil prices, and the resulting higher inflation and interest rates, reignited as oil prices came back down after the peace deal. But hostilities with Iran have resumed.
The market is causing whiplash. The Iran peace deal changed things. Stocks held back by high oil prices, and the resulting higher inflation and interest rates, reignited as oil prices came back down after the peace deal. But hostilities with Iran have resumed.
The peace deal may be on hold again. But stocks are hanging in there so far.
The ceasefire with Iran is over and hostilities have resumed. That sounds like a bigger bummer than it’s been in the market so far. Falling oil prices enabled previously beleaguered stocks to soar higher again as the prognosis for inflation and interest rates simultaneously improved. But that rally is over if oil prices spike higher again.
The ceasefire with Iran is over and hostilities have resumed. That sounds like a bigger bummer than it’s been in the market so far. Falling oil prices enabled previously beleaguered stocks to soar higher again as the prognosis for inflation and interest rates simultaneously improved. But that rally is over if oil prices spike higher again.
It’s no surprise that summer often brings lower market volatility levels as Wall Street heads to the Hamptons and participation rates diminish.
Indeed, what we’re seeing right now has all the classic symptoms of a low-participation environment, with investor sentiment being remarkably muted. This can be seen across a number of sentiment indicators for several different markets, most of which are flashing decisively “neutral” signals.
Indeed, what we’re seeing right now has all the classic symptoms of a low-participation environment, with investor sentiment being remarkably muted. This can be seen across a number of sentiment indicators for several different markets, most of which are flashing decisively “neutral” signals.
The divide between value and growth stocks is widening, as the Nasdaq is now more than 5% off its highs after peaking in early June while the Vanguard Value Index ETF (VTV) is hovering near its late-June apex and is up 3% in the last month.
That can flip in an instant, of course, as we saw in April and May. But the bottom line is that value stocks have risen 15% year to date, compared to an 11% gain in the Nasdaq and a 9.5% boost in the S&P 500.
That can flip in an instant, of course, as we saw in April and May. But the bottom line is that value stocks have risen 15% year to date, compared to an 11% gain in the Nasdaq and a 9.5% boost in the S&P 500.
After a very strong run from the March lows, the market appears to be going through an uncomfortable but healthy rotation. Many of the biggest winners from the AI and semiconductor trade have come under pressure, while value stocks, equal-weight indexes and other areas that had lagged earlier in the year have held up much better.
Markets are facing more inflation as the Iran mess gets messier. Concerns over high AI capital spending are a cloud over a resilient market. On the bright side for our portfolio, however, International Business Machines (IBM) shares were up 7.4% this week following last week’s 8.9% gain. Sea Limited (SE) shares leapt 9.6% this week and are up about 20% over the past month. MercadoLibre (MELI) shares are up 11.6% over the last two weeks.
I remain bullish on stocks, but I am turning more cautious, winding down leverage, and letting some cash build up in my non-marginable accounts.
The reason is that spooky season lies just around the corner. September and October are typically the weakest months of the year. We also often see weakness in July and August, perhaps as investors get nervous about those looming difficult months.
The reason is that spooky season lies just around the corner. September and October are typically the weakest months of the year. We also often see weakness in July and August, perhaps as investors get nervous about those looming difficult months.
After a very strong run since the March lows, the market appears to be going through a healthy, albeit somewhat uncomfortable, rotation.
The biggest winners from the AI and semiconductor trade are finally seeing some profit-taking, with Goldman Sachs (GS) noting that momentum stocks recently suffered their worst two-day decline since 2020. UBS (UBS) just said that the momentum factor is down roughly 20% from its June peak, marking the seventh-largest drawdown of the last decade and the fastest decline of that magnitude on record.
The biggest winners from the AI and semiconductor trade are finally seeing some profit-taking, with Goldman Sachs (GS) noting that momentum stocks recently suffered their worst two-day decline since 2020. UBS (UBS) just said that the momentum factor is down roughly 20% from its June peak, marking the seventh-largest drawdown of the last decade and the fastest decline of that magnitude on record.
Alerts
This is a sell of a previous recommendation.
Jim Cramer is also forecasting a “lift across the board” for home building companies, including this one.
The shares of this recently IPO’d stock have just been initiated as a ‘Buy’ at Citigroup and Jefferies, and as ‘Outperform’ at Wells Fargo.
This infrastructure company has agreed to sell its Australian mining consumables business, Donhad Pty. Ltd., (acquired in 2010) to Moly-Cop.
My research for September is complete, and my computer-generated price targets for two of our stocks will increase.
This Chinese hospitality company beat analysts’ earnings estimates by $0.12 last quarter, and eight analysts have boosted their forecasts in the past 30 days.
This beverage company is changing focus, selling its manufacturing business and reforming itself into a water, tea and coffee home/office delivery business.
One of our stocks closed below our mental stop of 58 on Friday so we’ll book our small profit today.
This consumer products company beat analysts’ estimates by a penny last quarter, posting EPS of $0.87 per share.
The market is having a mixed day so far, with the Dow up slightly, the Nasdaq down slightly and with many individual growth stocks in the red.
One of our stocks is down 12% this morning after reporting another mixed-but-good quarter yesterday afternoon.
One of our stocks reported earnings last night, and although sales were stronger than expected, EPS fell one cent short of estimates.
Portfolios
Strategy
A few Cabot Options Trader subscribers have asked me about ways to protect gains in their portfolios, so I thought I would write to everyone with a couple of strategies using options to hedge your portfolio.
A subscriber recently asked me if I keep a journal of my trades. Many traders keep journals so they can look back at their trades and evaluate what they did right and what they did wrong.
Want to know how the big institutional investors use options? Here is an example of how one trader spent $132 million on three technology stocks.
Options trading has its own vernacular. To know how to do it, you need to know what every options term means. Here are some of the basics.
Our Cabot Momentum Trader’s market timing system consists of two parts—one based on the action of three select, growth-oriented market indexes, and the other based on the action of the fast-moving stocks Cabot Momentum Trader features.